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The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33 percent over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

An increase in the price level of 2 percent in any one year is barely noticeable. Under a gold standard, such an increase was uncommon, but not unknown. The difference is that when the dollar was as good as gold, the years of modest inflation would be followed, in time, by declining prices. As a consequence, over longer periods of time, the price level was unchanged. A dollar 20 years hence was still worth a dollar.

But, an increase of 2 percent a year over a period of 20 years will lead to a 50 percent increase in the price level. It will take 150 (2032) dollars to purchase the same basket of goods 100 (2012) dollars can buy today. What will be called the “dollar” in 2032 will be worth one-third less (100/150) than what we call a dollar today.

The Fed’s zero interest rate policy accentuates the negative consequences of this steady erosion in the dollar’s buying power by imposing a negative return on short-term bonds and bank deposits. In effect, the Fed has announced a course of action that will steal — there is no better word for it — nearly 10 percent of the value of Americans’ hard earned savings over the next 4 years.

Why target an annual 2 percent decline in the dollar’s value instead of price stability? Here is the Fed’s answer:

“The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public’s ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling — a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term.”

In other words, a gradual destruction of the dollar’s value is the best the FOMC can do.

Here’s why: First, the Fed believes that manipulation of interest rates and the value of the dollar can reduce unemployment rates.

The results of the past 40 years say the opposite.

The Fed’s finger prints in the form of monetary manipulation are all over the dozen financial crises and spikes in unemployment we have experienced since abandoning the gold standard in 1971. The financial crisis of 2008, caused in no small part by the Fed’s efforts to stimulate the economy by keeping interest rates too low for, as it turned out, way too long is but the latest example of the Fed failing to fulfill its mandate to achieve either price stability or full employment.

The Fed’s most recent experience with Quantitative Easing also belies the entire notion that monetary manipulation can spur the economy. Between November 2010 and June 2011, the Fed tried to spur economic growth by purchasing $600 billion in Treasury securities, flooding the banking system with reserves and keeping interest rates low. In response the economy, which had been growing at a 3.4 percent annual rate, slowed to a 1 percent annual rate in the first half of 2011. Once the Fed stopped supplying all of that liquidity, economic growth in the second half of the year accelerated to a 2.3 percent annual rate.

Second, the Fed does not use real time indicators of the price level. Instead, it views inflation through the rear view mirror of the trailing increases in the PCE. And, even when it had evidence of rising inflation — as it did in the first quarter of last year — it chose to temporize, betting that the spike in inflation would prove temporary.

This spike in inflation did prove temporary, as Fed Chairman Bernanke predicted at the time, but not for the reasons — a slack economy — that he cited. Instead, the growing debt crisis in Europe led to a massive shift in deposits out of the euro and into the dollar — an event totally out of the Fed’s control. Yet, this increase in the demand for dollars was far more important than any action taken by the Fed because it increased the value of the dollar and produced a slowdown in the inflation rate.

What we are left with is a trial and error monetary system that depends on the best judgment of 19 men and women who meet every six weeks around a big table at the Federal Reserve in Washington. At the end of a day and a half of discussions, 11 of them vote on what to do next. The error the members of the FOMC fear most when they vote is deflation. So, they have built in a 2 percent margin of error.

Given the crudeness of the tools the FOMC uses to set monetary policy, allowing for such a margin of error is no doubt prudent. For example, when the economy slowed in the first half of last year, inflation picked up, accelerating to a 6.1 percent annual rate during the second quarter. And, when the economic growth accelerated in the second half, inflation slowed. These results are the precise opposite of what the Fed’s playbook says are supposed to happen.

The best the Fed can do — an average debauch in the dollar’s value of 2 percent a year while producing recurring financial crises and a more cyclical economy — is demonstrably inferior to the results produced by the classical gold standard. Here’s just one example. The largest gold discovery of modern times set off the 1849 California gold rush and increased the supply of gold in the world faster than the increase in the output of goods and services. The price level in the US did increase by12.4 percent over the next 8 years. That translates into an average of just 1.5 percent a year. The gold standard at its worst was better than the best the Fed now promises to do with the paper dollar.

The Fed’s best is hardly good enough. The time has arrived for the American people to demand something far better — a dollar as good as gold.